The role of families in rural banking industry

The role of owner families in the Philippine rural banking (RB) system remains an important factor for the continued development of the rural communities, according to the Rural Bankers Association of the Philippines (RBAP).

“An unappreciated fact is that rural banks don’t easily go away [from town to town]because the owner families actually live in the certain municipality. They are part of the community,” RBAP President Vittorio Almario said.

He added that the concept of family owned rural banks provides financial stability and assurance for a certain municipality.

“For a lot of communities, it was very important, that is why the presence of family is also very important,” he said.

Almario also explained that the original design of the rural banking system was to provide one bank per town.

“So for a number of years, RBs are encouraged by limiting competition. No other rural bank can come in to a particular town,” he stated.

However, Almario said that because of the free market concept and conglomerations, where big commercial banks are buying out rural banks, the set up of family owned rural banks has changed and becoming more impersonal.

He admitted there were rural banks that are looking to be bought up and there are outfits interested to go into to rural banking.

Despite the free market concept and the buying out of rural banks, he said that the there are still sectors that remain unbanked.

He cited BSP (Banko Sentral ng Pilipinas) statistics, which showed that 30 percent of the municipalities don’t have a single bank at all.

“The reason is because when you go free market, you go where the money is. So there are overbanked and yet the very next town has no bank,” he said.

Not more served
To date there were 550 rural banks and about 2,500 outlets. Almario said that the numbers of rural banks used to be 1,100 with a single unit per town.

He said that there will always be underserved areas regardless of the fact that the number of banking outlets have increased in the thousands, compared to the 1960s.
“It doesn’t mean that the 2,500 outlets now are serving more . . . it could be less,” he said.

On the other hand, RBAP Executive Director Vicente Mendoza said that another importance of rural banking is its ability to provide loans faster than any other type of banks, particularly for their target market.

Mendoza said that even with the entry of big banks in various municipalities, rural banks pride itself with being able to give loans as fast as possible.

He said that the familiarity of a rural bank in a certain community and its being local makes it easier to approve a certain loan.

“So it takes loan a shorter period to process. While even with these rural bank-commercial bank-to-unibank set up, I’m sure it has to go through a credit-committee type [process]. So that lengthens the process,” he explained.

“We also know, that it is not the cost, but it is the speed what the [borrowers needs],” he added.